Green tax shift begins in Europe.

A modest but momentous change in taxing strategies is taking place across Western Europe. In the past five years, five European countries have cut income or payroll taxes while increasing taxes on energy use, waste generation, or pollution. More seem likely to follow.

Tax-shift proponents made their first gains in northern European countries, which have comparatively strong records on environmental protection - but which also have heavy tax burdens. The world's first tax shift was passed by the Swedish parliament in 1991. It reduced total income taxes by 4 percent. To pay for this reduction, the government instituted a variety of environmental charges, including taxes on sulfur dioxide emissions, which cause acid rain, and on carbon dioxide emissions, which contribute to the greenhouse effect.

Denmark followed its Nordic neighbor's lead in 1993 and 1995. It cut standard taxes by 3 percent and instituted levies on water use, pesticides, carbon emissions, and sales of batteries - resulting in a tax shift of 3 percent overall. The Netherlands followed suit late last year with a 0.7 percent tax shift from income to energy use. And in Germany, all but one of the major political parties have made environmental tax-shift proposals, though none have yet been enacted.

Tax shifting is also catching on in countries less known as environmental pioneers. Here, its great strength has been that it allows governments to cut the payroll taxes that fund social security programs - taxes that are thought to be contributing to high unemployment by increasing the cost of labor. In Spain, where unemployment has exceeded 20 percent for three years, payroll taxes were cut by i percent in tandem with a 3.5 percent hike in the gasoline tax. In the United Kingdom, where the unemployment rate has long hovered near 10 percent, the government has announced a small tax shift from wages to landfilling.

Evidently, tax-shifting's appeal reaches across the political spectrum. For progressives, it has the appeal of protecting the environment by making the polluter pay, and reducing unemployment. For conservatives, it offers the advantage of using the market, rather than regulatory agencies, to protect the environment, and allows for cuts in much-resented income or sales taxes that may inhibit constructive economic activity. With such broad appeal, environmental tax reform could soon catch on around the globe. The small shifts occurring in Europe today may be the first tremors of a much larger shift in global tax practices to come.

For further information: The Wuppertal Institute for Climate, Environment, and Energy in Wuppertal, Germany publishes a newsletter that tracks developments in environmental taxation worldwide. Address: P.O. Box 10 04 08, D-42004 Wuppertal, Germany. Phone: [phone]. Fax: [phone]. Internet: [e-mail].